STRATEGY: We maintain our end-11 FBMKLCI target of 1,654 which implies a forward PE target of 13.5x, although there could be downside to earnings forecasts as inflationary effects seep in following the recently-announced 8% effective electricity tariff hike. We envisage a scenario of a weak sentiment in 3Q11, in tandem with the ending of US Federal Reserve’s quantitative easing (QE2) in June 11, followed by recoveries in 4Q11.
Overall, global equity markets’ upside (having recovered close to historical highs) is limited, reflective of the flattish trends in seen in global money supply. We advocate focusing on beneficiaries of Economic Transformation Plan (ETP) such as O&G, construction and selected property stocks, as well as the banking and gaming sectors.
Yield-driven funds should continue to OVERWEIGHT telcos. UNDERWEIGHT the plantation sector on rising production, as the tapering off of QE2 could at least temporarily deflate the commodity theme. Top picks are Berjaya Sports Toto, CIMB Group, Gamuda and MRCB, and we foresee near-term opportunities for UEM Land (trading play), Gamuda and MRCB.
by UOBKH
